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PSBs lose ground to private banks, finance companies in SME lending

Public sector banks (PSBs), traditionally dominant in lending to small and medium enterprises (SMEs) are now facing a strong challenge mounted by private banks and finance companies to win away this business.According to a TransUnion CIBIL analysis, a combination of high credit demand and relatively low bad loans (low rates of accumulation of non-performing assets or NPAs) makes lending to micro enterprises and SMEs (the MSME sector) among the most attractive of target segments. The MSME credit opportunity stands out in a period where credit growth to large corporates is somewhat constrained.Private banks and non-bank financial companies (NBFCs) have made significant inroads in this segment. The market share here of private banks has grown from 25.4 per cent to to 28.5 per cent and of NBFCs from 7.9 per cent to 10.4 per cent during the two year period from December 2015 to December 2017. In the same period, the market share of PSBs has reduced from 61.5 per cent to 55.4 per cent, CIBIL said.The share of multinational banks has been low in this segment due to the relaxed priority sector lending norms for them. However, with the new Priority Sector Lending guidelines requiring these (with more than 20 branches) to be at par with Indian banks on MSME lending by March 2018, even they are expected to grow their loans to this segment.On asset quality trends in MSME lending, there are significant differences across lenders.Private banks and finance companies exhibit NPAs in the range of 3.5-5 per cent. State-owned lenders show a higher level of bad loans, of 10-12 per cent; it rose here from 10.3 per cent in December 2015 to 12.4 per cent by December 2017. The NPA rate has been stable for private banks.